Executives: Francesca Rambaudi - IR Enrico Vita - CEO Ugo Giorcelli -

CFO
Analysts: Nicolo Pessina - Mediobanca Romain Zana - Exane BNP Paribas Keith Li - Jefferies Veronika Dubajova - Goldman Sachs Oliver Maxler - Commerzbank Domenico Ghilotti - Equita Philippe Bopriny - Kepler Markus Gola -

MainFirst
Operator: Good afternoon. This is a Corus call conference, thank you for joining the Amplifon Full Year 2016 result Conference Call. [Operator Instruction] At this time I would like to turn the conference over to Ms. Francesca Rambaudi, Investor Relations of Amplifon. Please go ahead madam.

Francesca Rambaudi: Thank you. Good afternoon and welcome to the Amplifon’s conference call on full year 2016 results. During the next hour, Enrico Vita, Amplifon's CEO and Ugo Giorcelli, Amplifon's CFO will provide comments on the results of full year 2016 and for the fourth quarter 2016. After the presentation, we will be happy to take your questions. First, a few logistical comments, earlier this morning we issued the press release that contained our results and the presentation, which management will refer to now is posted on our website in the Investor Relations Section.

Second, from today you can access this call also via audio webcast, the link is indicated in our press release. Lastly you should note that statements made during this call maybe consider as forward looking statements. And that actual results may differ materially from those projected in any forward-looking statements. Please refer to the disclaimer on Slide 2. With that, I’m now please to turn the call to Amplifon’s CEO.

Enrico Vita.

Enrico Vita: Thanks, Francesca. Good morning everyone and welcome to our full year 2016 results conference call also from me. Today, we are extremely pleased to comments with you another strong stet of results for the last quarter of the year. But above all we are very pleased to comment another record fantastic year for our company.

2016 was certainly an excellent year from this financial perspective plus what makes me also very satisfied is that last year we really did an incredible amount of work and this is true everywhere in other regions, in other markets, the corporates, in all the functions and in fact I cannot name anyone that did not do their part. Moreover, last year we focused more than ever in the management of two key intangible assets our people and our brands, building in this way a structural platform for the long-term sustainability of our performance. So that today, we feel we are coming out from a record year stronger than ever. So, let’s now move to the chart number five to comment together the numbers for the year and for the last quarter afterwards. As you can see in chart number five, we posted the record results on top of 2015, which was another record year, revenues were up 10.4% in local currencies and I would like to highlight once again that all the regions, all the markets performed very well, as well as the composition of the growth was very healthy, 7.4% was the organic growth.

Also, we have been able to deliver record EBITDA in absolute terms and EBITDA margin improvement for our plans from 16.2 to 16.7 on a recurring basis. Finally, we significantly improved our bottom line plus 34.2% on recurring basis after a material increase in our investments in marketing more than 20% and in the organization. These excellent set of results allow us to propose to the next Shareholders Meeting a dividend increase to €0.07 from €0.043 of last year. So now let's move to the following chart, chart number 6, to quickly comment together the numbers for the last quarter. We had a strong finish of the year, the result for the quarter were very consistent with the first nine months and in fact the revenues were up nearly double digits 9.6%, 9.3% in local currencies.

We posted also solid organic growth close to 6% despite a very challenging comparison versus last year. Last year we had a growth of 9.5% in local currency. We also posted an excellent profitability improvement of 90 basis points after an increase of about 15% in our marketing investments. The next profit recurring was close to 30 million which is an increase of about 27% versus the last quarter of 2015. So let's now move to the following chart, chart number 7.

Here you can find our usual geographic road map. As anticipated early on here you can see that the growth was very strong across all our three regions and very consistent throughout to the year. All markets performed very well and we have outperformed the global market. Actually, we grew twice as much the growth of the global market which we estimate was about 5% in volume last year. This performance to me conforms, once again, that our business fundamentals are in a very good shape.

So before leaving the floor to Ugo, since today is his last day in Amplifon, I would like to take this opportunity to thank Ugo here once again for his contribution to the results and success of the company in the recent year. So please Ugo, go ahead.

Ugo Giorcelli: Well I'll take few words as well as to thank Enrico and this last part of my tenure with Amplifon and all the rest of the Amplifon team, but in particular I want also to take this opportunity to thank the analyst community and the investors, with whom I had many occasions of interaction in these very exciting nine years, in which I think we achieved a lot in terms of growth of Amplifon. So still have various things to do and just wishing the best also to Gabriele Galli that will step in from tomorrow in the position. Lastly and it's also a pleasure to close with once more a very good set of numbers.

So let's start from EMEA. EMEA is a market that as a referenced made about 5% growth in units and clearly Amplifon significantly up the form, posted double-digit revenue growth. We had the very strong component of organic growth at 6.6 and a very strong contribution from M&A with as usual very strong component from Germany and France. On the organic side, Italy has once more posted a very, very strong year, thanks to the TV campaign, TV and digital and this is on top of a very strong '15, it was versus '14 and so on. As I said, stellar performance in Germany with good underlying performance and 110 more shops acquired in the year.

Then positive notes with double-digit growth also coming from Switzerland, Iberia, Belux, Hungary and Poland and the EMEA regions all with very strong contribution from the organic growth. In the Netherlands, we had once more ASP pressure, but very strong volume growth has been able to offset this negativity. In France the growth came mostly from acquisitions, we bought 31 shops and another 10 shop in shops and also as you will see in a moment, we set in Q4 the foundation for another significant transaction that we are planning to consume shortly. In UK we have seen sales improvement that has been the first time since 2010 that we’ve seeing a growth evolution of the top line. All these positive notes on the top line are reflected in margin improvement and 160 basis points, thanks to the operational efficiency and clearly reaching scale or exceeding scale in core countries.

We would like to mention a significant acquisition that has been completed partially in '17 already in Q1 and partially will be completed in the next coming days. We bought from [indiscernible] two assets that use to be part of the AudioNova Group in Portugal and it’s about to happen in France. Both companies are in the region of 13 million top line each, and we will be adding 75 shops in Portugal bringing our presence to well 130 shops in Portugal, that is clearly a very optimal complete presence in this country. And the 55 additional shop in France we’ll take us to 560 points of sales between shops and the shop in shops. We are, for the time, only declaring the value of the Portuguese transaction that is completed, that is in the region 16 million.

Moving on to the American business, the reference market is estimated to be in the region of 5.5% growth. And we have done excellent job growing the business on the high single-digit on a full year basis. Also [Audio Gap] sorry, I was kept off for the moment, I was saying that we have had a very positive evolution in Q4 as well because we shouldn’t forget that the comparison basis was 18.7% in Q4 one year ago. We have seen a little bit of slowdown in in Q4 in connection to the president's election as is pretty normal, but the center was back to normality. In terms of performance of the three business units [indiscernible] extremely well, very good execution of the strategic initiatives, new marketing campaigns, 58 openings.

We have renewed the agreement with [indiscernible], so it remains the sole provider of Miracle-Ear brand of the instruments, and we have top level of relationship with our franchisees. And so this collaboration and alignment with the franchisee is fundamental to the success of Miracle-Ear. Positive contribution in Elite as well, we have had as you all know for the three previous quarters tough comparison due to the cancellation of one significant relationship, but that was up to Q3, from Q4 it is not anymore with negative comparison and we also seen an acceleration in the acquisition of new members in Q4. Excellent performance on the insurance business as well, we have in particular two large contracts have been the African business. Also in Canada, we have had very successful year because not only we have doubled the size of our network from 20 to 45, but also we have entered the most important market in Canada, Ontario.

These positive numbers reflect the solid performance also at the EBITDA level. We should remember all that this is a year of investment in the business with additional expenditure in marketing that is after 40% and organization as well that is up 15%, but nevertheless we have been able to substantially maintain and even increase in absolute terms our EBITDA. Moving to Asia Pacific once more, we'll have to use very positive objectives in commenting this performance. The Asia and Australia and New Zealand market have grown at 6%, we have posted revenue growth at 11.6. We are seeing this on top of an already very challenging comparison represented by the 10.7 growth we had in '15.

We had an additional currency tailwind in Q4, significant because it's plus 6.8. With a little bit more granularity on the two main markets, in Australia we have had double-digit organic growth and the marketing lead generation has been successful we keep on working on productivity that maintains a very high level of EBITDA margin and we've further increased our footprint by 8 shops and 25 shop in shops. New Zealand had very tough comparison basis because it is 20% the year before, but we have been able to anyhow improve on top of this very good starting point. Within particular acceleration in Q4 at double digit level. Remarkable for the year, the integration between also the [indiscernible] business together with the established [indiscernible] brand, we have opened 9 shops.

We have also in this market increased our marketing expenditure at about 50% by over year-on-year. EBITDA is up 8.8 year-on-year and remains the highest level of the [indiscernible]. Moving to view of the number on a complete basis Q4 margin is up on the repairing basis from 19.7 to 20.6. In Q4 as you can see in the difference between Q4 recurring and Q4 reported, we have posted a 5.5 million goodwill adjustment, goodwill right-off on the UK, because despite the increase in the top line, UK remains in loss making position even though decreasing and applying the accounting principal we had to go through this partial right off of the goodwill that is now down in the region of about 10 million. Final page of P&L on Page 13 for the full year, I would like to remark once more the improvement on the EBITDA margin up by about 50 basis points, absolutely in line with the target even at the beginning of the year in our Investor Day, and I would like also to remark the strong improvement in the net profit and so also in the earnings per share that are up over 30%.

This is also thanks to an improvement in the tax rate. Tax rate is down at reported level from 47% in '15 to 40.6% in '16. And on a recurring base is below the 40% market 38.6 in line again with the indication we have given, I'll remind you that the goodwill write off is not tax deductible. And I want to also remind you that we still have no tax asset activated on the loss-making entities. If we were to get also these entities into profit, the tax rate would be some 3%, 4% response lower.

Another element that I would like to mention regarding the taxes especially is that we have filed the request for patient box [ph] that is new low initially that allows to consider some of the revenues as non-taxable. And in addition that we will be seeing in '17 and onwards a reduction in the corporate rate in Italy from 27.5 to 24. So the two elements of the -- tax free elements looking into the future of the patient box successful negotiation with tax authorities, reduction in income tax in Italy and the fact that we see improvement in the countries in which we are currently not activating tax assets, should all bring to further reduction of tax rate. Moving to the cash flow, starting from strong operating cash flow I would like to remark the increased level of investments. CapEx are up substantially to support to the openings we have already commented.

The acquisitions have doubled from 40 million to 80 million. So, overall the investment in the business have gone up from 70 million to 140 million. Substantially, the bulk of this increase in investment has been self-financed and the increase in the best financial position is limited to 23 million more of net debt at the end of the period. This is clearly also reflected in the ratios that you can see in the last page of my presentation, that you see remained substantially stable at very, very healthy level of about 1.2 net debt-to-EBITDA and 0.4 net debt-to-IPC [ph]. With this, I turn again to Rico for some more strategic notes on our business.

Enrico Vita: Thanks, Ugo. So, we go to the chart number 17. As you know last year on March 17, for the very first time we shared with the financial community our aspirations, strategies and ambitions for the three-year period from 2016 to 2018. In 2016, we have successfully executed on our commitment delivering another record year. Firstly, we achieved all time higher revenues for the second year in a row with a growth of over 10% in local currency and moreover with a very healthy mix, more than 70% was organic and was strong across all the three regions.

We are significantly outpaced the global market, gaining the additional share and we have consolidated our position globally adding a total of more than 300 shops and shop in shops to our network. Moreover, 2016 was a record year also for profitability we posted record EBITDA in absolute terms and the net profit recurring was up by 34% versus the previous year. As I mentioned and you know, these excellent results allowed us to propose a dividend to our shareholders of €0.07 which is an increase of over 60% versus last year. And we payout close to 2.25. In March 2016, we also provided you with a clear definition four strategic pillar to deliver on our strong ambitions.

I would like now to go quickly through them one by one, and tell you how we have progressed and successfully executed with concrete initiatives and tangible on each of them in 2016. So let's move now to the following chart, chart number 18. As you know our first pillar is to strengthen leadership in the cote market that alone represents over 70% of the global retail market value. Primarily in the U.S. which alone represent today more than 40% of our industry value, we have strengthened our position, executing on all strategic initiatives driving to accelerate the organic growth.

For Miracle-Ear for example we further invested in strengthening our brand equity and improved our customer experience, we optimized the market and mix with an acceleration in lead investment and launched a new impactful campaign which has delivered a strong improvement in lead generation. We also improved our online present and executed above plan on our footprint expansion with 58 openings. Secondly, we increased our market share in Germany, France, Spain and Canada via accelerated network expansion. In Germany, we added 110 shops in 2016 and over 140 shops as of today. In fact I'm particularly gladder to inform you that we have just surpassed and that the key mark of 400 stores in Germany.

In France, we acquired a total of 41 shops and shop in shops in 2016 and we are about to close, as you know of our retail business, in the coming days with another 55 shops. In Spain, we opened 15 shops and in Canada which is an important market accounting for about 4% of our industry in value, we more than double our network via acquisition. Thirdly, in Italy and Australia, we continued to grow respectfully in high single and double digit thanks to marketing excellence and continuous focus on productivity. Finally, in the UK we invested the trend of our top line going back to growth for the first time after 2010 starting reaping the benefits of the new plan currently underway. So let's now go to the following chart number 19, which is about our second pillar, excellence in marketing, which I strongly believe is the key to win in our sector.

In 2016 we worked with great results on three dimensions. First on the brands, in June 2016 we launched our new brand identity together with its new logo and Web site. Our new brand line Hear, Feel, Live summarizes Amplifon's new brand identity and underlines our commitment to help people to rediscover all the small pleasure of hearing, at the yearend we also reached the rebranding of over 70% of our Amplifon stores as planned. Second on the effectiveness of our marketing investments, in 2016 we invested over 20% more in marketing, we launched a new impactful TV campaigns in the U.S. and Italy with immediate returns in higher lead generations.

Staying in Spain, New Zealand and above all in Germany where we build on our total brand awareness doubling it from 15% as of the ending 2016 to more than 35% at the yearend. Lastly, we accelerated on digital marketing, rolling out eight new consumer Web site, launching the new digital investor user experience in the U.S. and successfully focusing in improving our online presence. Also here we have clear results we digitally leads strongly increasing. Let's now go to the following chart, on the chart number 20 which is about our third pillar, the service model.

In 2016 we continued to improve the service we provide to our customers and to innovate our business model, striving to exceed our customer expectations with the best experience ever. Last year we rolled out our Amplifon 360, our exclusive and customized protocol which enabled each customer to better understand the daily needs resulting in even higher level of satisfaction. As planned we focused in Europe with a complete rollout executed in three countries and ongoing rollout in other four. Let's now move to the following chart, the chart number 21 and to the fourth and last pillar which is about ensuring the best support from key enablers to successfully implement our strategy which is at the end of the day -- which means at the end of the day to attract the best people in the industry and continue to invest in technology. In 2016 in order to strengthen our position as the best employer of choice for top audiologists and for global talent, we launched our new global career Web site in six languages and we also launched 14 local career Web sites as well as implemented a strong social media strategy dedicated to attract talent with the specific focus on millennials.

During the year we also conducted for the very first time our global engagement survey which allowed us to better understand our people their motivational and their engagements but also provided us with interacting insights, so that we can focus our efforts on finding ways to better meet their needs. The participation and engagement rates were extraordinarily high. Last but not least, we continue investing in technology as global ITC spends are critical element of our business model. Just think of the infrastructure to support our growth and integrate our positions for instance to the CRN from [indiscernible] or digital. So let's now move to the following chart, chart number 22.

To see again summary of the result that we delivered in 2016 and how this compare to our 2018 ambitions. Last year in March we told you we envisioned an average revenue growth in the range of mid to high single digit both organic and through this mill [ph] acquisitions. In 2016 we grew our top line by over 10%, so largely exceeding the targets. And the same time thanks to better operating leverage we also told you we expect to be able to further improve our EBITDA margin by at least 150 basis points by 2018, we had pretty linear development. In 2016, our EBITDA margin improved by 50 basis points, perfectly in line with the target, but definitely higher in absolute value given the significant higher rate of the revenue growth.

Finally, in 2016 we overachieved our network expansion target with a total of 230 stores or 305 stores if we include also the shop in shops. All-in-all, the stronger results achieved in 2016 position us well on track to reach the target we set for 2018 in our strategic plan, but also provide us an excellent basis to sound optimistic to 2017. So, let’s now move to the slide number 24, which is about the outlook for 2017. So, with this chart we are almost at the end of today’s presentation. We are extremely satisfied about our performance and the initiatives we have initiated in delivered in 2016.

But in addition, to strong financials we are well on track in executing our mid-term strategy. Now we are in 2017, which we expect to be a continuation of the path of profitable growth initiated last year. What I can tell you is that our people, our organization is fully committed to make up 2017 another successful year. I would like also to share with you that the January and February this year has been already very strong months, so we are off to a good start. With this I leave back the floor to Francesca.

Francesca Rambaudi,: Just a quick reminder of our upcoming corporate events, on April 20, 2017 we will have the Shareholder’s General Meeting in single call primarily to resolve upon the approval of the financial statements as of 31, December 2016 and dividend distribution. On April 27, Q1, 2017 results, on July 26, the Q2 and H1, 2017 results and on October 25, Q3 and first nine months 2017 results. Also the results will be followed by a conference call and audio webcast at 3 PM Continental Europe. With this, I turn back to the operator in order to open the Q&A session.

Operator: This is Chorus call conference operator.

We will now begin the question-and-answer session [Operator Instruction] The first question is from Nicolo Pessina with Mediobanca. Please go ahead.

Nicolo Pessina: Yes. Good afternoon everyone. I have three questions.

The first one is on the effectiveness of the marketing strategy you presented to us a year ago. And I’m wondering if we could have more color on which countries you have already -- in which you have already introduce that this new strategy and what was the impact on growth? And one year later, if anything is changing or the strong growth at the beginning and usually after the implementation of new strategy is continuing. Second question on the outlook for 2017, you mention sales growth acceleration, so I am wondering if this acceleration refers to overall growth as well or also to organic growth in particular. And last point on the changes of the regulatory framework in Italy, if you could give us some more color on the expected timeline and potentially impact for office [ph]. Thank you.

Enrico Vita: Sorry, can you please say again about the second question, I missed some words.

Nicolo Pessina: The second question is on the outlook for 2017, on Slide 24 you mentioned sales growth accelerations, so I am wondering if it refers to growth as overall or to organic growth in particular.

Enrico Vita: Right, I will take the three questions. So about the marketing strategy, for sure in 2016 we focused in few countries, in particular in Italy there was the continuation of the initiatives that we already started in the later part of 2015. Also as you know, actually we focused pretty much on the U.S.

with the launch of election campaigns in the second quarter, second and third quarter of last year, also here I can say that the four months of the new TV company and the integrated marketing campaign were extremely positive. Also we launched a new campaign in other countries in particular in Germany and Spain. Of course the objectives in these countries is a bit different because as you know our brand awareness in those countries is definitely much lower than the one that we have in Italy or in the U.S. and the four in particular in Germany the focus there was about brand awareness and in fact I think I mentioned during my presentation that we had very positive results on these aspects in Germany, growing our total brand awareness from 15% of 2015 to more than 30%-35% in 2016. So here of course the objectives were quite different.

Coming back to the second question, which is about the outlook for 2017. As you know we do not provide one year guidance, our focus is on delivering the targets for the mid-term, but what I can tell you is that we're looking at quite a strong growth all across, so either in terms of organic growth, but also through the acquisitions. As I mentioned during the presentation, I have to say that also January or February which are quite important months because they are just at the beginning of the year and therefore we get early indication about the progression of our initiatives, were very strong months. So I have to say that I'm very happy about in terms of progress also here. In terms of the regulatory framework in Italy, well we do not have any further update.

As you know on January 2012 date the Italian government approved the annual LEA, the Legally Essential Assistance, which brings entirely a new important interaction to the overall Italia regulated healthcare market. So basically, include the revision and update of the main principal and criteria for the regulatory framework related to any solutions. Then main difference with the past regulation where about the basic divide which go from analogical to digital, but also about the eligibility. So going from more than 65 decimals as hearing loss to more than 55, so basically these should expand actually the eligibility criteria. So the next step we will include the publication on the gadget of [indiscernible] expected in the next week.

And the definition of Paris expected in the Q1, Q2, and therefore an expected implementation in half to 2017.

Operator: My next question is from [indiscernible]. Please go ahead.

Unidentified Analyst: I just wondered if you could say how -- I realized that you, during the call said that you felt that you wish to after the U.S. election was sort of back on track, but could you say anything about if we or if there is any sort of uncertainty in the market potentially related to the repeal of the Affordable Act Care, if that creates an uncertainty among insured patient who might -- is holding back on spending out of own pocket money around business in hearing aid, are you seeing any sort of that sort of holding back.

And then also on the OTC area, could you please say if you see that as friend of foe and if we are going to have announced the three categories in the U.S. Thank you so much.

Enrico Vita: With regards to the first question actually we have experienced a slowdown only in October and November which was exactly in the period of the presidential elections. I think that those two month the market was briefly flat in comparison with the last year. While in December we have also seen the market going back to normal rates.

Actually I think that in December the great growth of the market was double-digit 10%. So we have seen a normalized situation in terms of market growth already in December and as I mentioned actually also what we have seen in our business in January and February was quite positive. So I do not see -- I think there was a temporary slowdown just in two months of last year and why still today we are back up to a normal level of growth. With regards to the OTC question, well its very -- I mean to say what it will happen and of course you know all the story about all the discussions around this topic, you know that on December 7, the FDA announced that is intend to consider and address the fee cap and NAS recommendations regarding a regulatory framework for OTC. However, of course FDA also say that they will seek for additional public inputs before proposing such an approach.

Clearly, the situational objective is to pursue an increasing in penetration of being engage among population with hearing loss and improve the treatment. However, we think that the strongly arguable that OTC could be actually the solution. For many reasons, the fact is because the U.S. today is among the countries with the highest penetration and customer's satisfaction, while the countries that introduce OTC show low adoption and customer satisfaction rate. For example, Japan with an adoption rate of less than 15% and satisfaction rate of around 40%.

Secondly, because professional assistant and quality products are the key drivers for adoption and satisfaction, while the price is a residual factor. Finally, according to our dialogue study on the OTC approach that we conducted in December last year in the U.S., [indiscernible] has limited capability to self-diagnose and self-select an effective treatment for hearing loss. Therefore, and it is a very important point, raising public certainty and patient outcome issues which in our opinion cannot be neglected. So, it’s very difficult to say what it will happen, but in case of any change in regulation, business and situation will vary the pending on detail on the final provisions. However, we think that OTC approach will be probably appear the small segment of customers which are the most price driven.

As you know, the process is ongoing, the next steps are the Federal Trade Commission workshop on affiliating [ph]. That NAS dissemination meeting on June 9th, and the FDA afterward workshop with that date to be defined.

Operator: The next question is from Romain Zana with Exane BNP Paribas. Please go ahead.

Romain Zana: Yes.

Good afternoon. Thanks for taking my questions. Most of them have been answered. The first question I have is about the profitability improvements read down, it would be great if you could give us a little bit more granularity as regard to gross margin versus SG&A. I was wondering if the bulk of the marketing incremental cost has been balance or even overbalanced by a gross margin improvement in 2016.

And the second that’s related question to profitability is more focused on the U.S. for 2017. Given that the marketing investments are affecting 2016 and also that you should benefit from the recent negotiate renegotiated contract with [indiscernible]. Will it be fair to expect the profitability to have this return to 2015 level in this region? Thank you.

Ugo Giorcelli: Okay.

I take the first question, while clearly you know it's an ongoing discussion with our suppliers to keep on improving the terms and so year-on-year we get better conditions, and in fact part of the increase in the marketing has been financed by the suppliers. At the end of the day is also if you want part of the negotiation we had with the suppliers, because to the extent that we can prove to them that we are able to expand our presence we can grow the volumes and marketing is driving that this helps the negotiation that is not only squeezing their margins, but is in fact growing jointly the business. So it's kind of virtuous cycle to show that some of the improvement coming -- that the improvement coming from the negotiation reinvested into business. In this case, we have in fact invested even beyond the work we have gotten from the suppliers, but at the end of the day showing is proving to be a good strategy because the overall profitability of the group is improving, so the top line impact is more than offsetting the increase in absolute terms of the marketing. So this in terms offer directional indication.

We don’t want to be more precise that I think is a fair answer. On the outlook on '17 on U.S. I think that Rico wants to give his view on this.

Enrico Vita: As you know the reduction in terms of percentage margin in 2016 was definitely planned given that the higher investments that we made in particular in the second and third quarter of last year. You may recall that in the second and first quarter of last year we had the peaking in terms of marketing investments.

In terms of outlook for 2017, in the full year we are envisioning an improvement in the profitability, in the path of growing profitability up to 2018. I think that this you will see starting largely from the second quarter, when we will be anniversaried the peak of the investment of last year. So in full year improvement starting most probably from the second quarter of this year.

Romain Zana: Okay, and a very quick one if I may, just in relevant trend and also the ongoing proposal to challenge the reimbursement scheme, what is your view about it and do you expect any impact on the business?

Enrico Vita: Well in terms of reimbursement scheme changes, I just that you are speaking broadly across regions and across countries you know that's the main, at the moment there are no plans to change any kind of reimbursement scheme in any of the countries in which we operate, but I'm not sure that I got your question actually.

Romain Zana: I found that in France there was a proposal to build --.

Enrico Vita: Right, so you're referring to the antitrust investigation in France, actually well you know that the investigation has been concluded. And basically the outcome is that first of all, I think that the outcome is very positive for the industry, because first of all they recognized that to the market in France is certainly very competitive, and I can tell you it is. Also they have confirmed the centrality of the professional figure of the audiologists in assisting the patients and this is of course very important. They came with two main recommendation, the first one is about to abolish or increase the close number of our audiologists graduating from university and this is I think a quite -- you know that today we have a close number of 199 audiologists graduating from university each year, and I think that this is a quite positive news for us because I can tell you that the labor cost with regards to audiologists is definitely the highest in our market. So there is an opportunity actually to have access to more audiologists.

And the second recommendation was to allow, and not to make mandatory to sell separately the first year or so the product, the service delivered during the first year and the following years. So the after sales service which is -- I mean I would say natural recommendation with limited or no impact, actually at all on our business.

Operator: The next question is from Chris Cooper with Jefferies. Please go ahead.

Keith Li: Good afternoon this is Keith Li of behalf of Chris Cooper.

I have two questions please. Firstly just on the guidance, are you intent on outpacing the market? I guess the perceived range can be quite abrupt depending on who you speak to, so I am just wondering what your assumptions would be for the market growth for 2017? And the second question is on tax. You still have a pretty high tax rate. And I guess the potentially years tax reform will have some impact on your calculations for that as well. Can you just help understand the main puts and takes from your perspective if the legislation does come to pass?

Enrico Vita: I'll take the first one and I'll pass to Ugo the most complex one.

About the first one, is the guidance on the market growth for next year, well we are envisioning a market growth which is in line to the recent years. So in between 4% to 5% in volume terms. As I said in the presentation last year we had a growth of 5%, so we envision similar growth also in 2017. And I leave to Ugo the question on the tax.

Ugo Giorcelli: Yes, on tax I would say these 13 points let's take the 2016 recurring in the 39% range.

From this I mentioned number of elements that will play in our favor. One it is easier to potentially quantify is the reduction in the corporate in Italy that is worth about 1 percentage point, that’s the order of magnitude. Clearly we depend also on the mix of Italy, is a bit of rest of the group, so let say is more about 1 percentage point. Than this is clearly more theoretically when it will come into fruition is the fact that we still some entities enough profitable, and on which we are not activating any tax asset or we have businesses that are increasing their profitability, but we are still not yet fully capturing also the benefit of [indiscernible] deferred tax assets not in the books. And this is potentially worth 3 percentage points as an order of magnitude, but when and how we’ll develop is not that easy.

And the third element is the patient box on which I make no statement because it’s an ongoing discussion with tax authority. So, I cannot put a number until this discussion is completed.

Keith Li: Okay. Thank you very much.

Operator: The next question is from Veronika Dubajova with Goldman Sachs.

Please go ahead.

Veronika Dubajova: Good afternoon gentlemen. Thank you for taking my questions. I have three please. The first one is just on the pace of U.S.

marketing investments from here and I guess either Enrico or Ugo to comment how we should be thinking about 2017, are you happy with the investments you’ve made and its now about reaping the benefits from them or is there more that you see opportunities for in 2017. My second question is on the French business, and I understand that your organic growth has been a bit subdued. Can you comment on how you fast you think the market is growing and what you need to do to reaccelerate the growth in the French business specifically from an organic perspective for ex-M&A. And then my last question is on the medium-term guidance, if I look at the 150 basis points effectively what that implies is 50 basis points of margin expansion in each 2017 and 2018, which is pretty similar to what you did in 2016, frankly wasn’t according to you at least "an investment year". So, am I right in thinking that the 150 basis points is significantly conservative.

Or have I overlook something in terms of the margin progression from here as it relates to the 2018 target?

Enrico Vita: Right. Thanks for the question. So, first of all about the U.S. In 2017, in terms of investments in marketing, we are in envisioning a slight growth, but not a significant one. The big jump in terms of investments in marketing in the U.S.

already happened in 2016. So, now we are just maybe increasing, but not significantly as last year. With regards to the French business, I think that the comment made by Ugo was about the full year, in reality we have seen actually that in the second half already of 2016, we have seen quite strong acceleration in the organic growth in France. And actually, the fourth quarter the organic growth was extremely strong, thanks to the all initiatives that we have taken throughout the year, so I expect actually our organic growth to be at least in line with the market growth or even higher than that, so no concerns at all about the French organic growth. And with regard to the improvement in profitability you know that we do not provide any guidance, at this moment actually we are not revising our guidance for the three-year period which is 150 basis points.

So certainly, if there will be an opportunity to do better, we will do. I wouldn't say that it’s overly conservative. What also I would like to highlight is that in absolute value we are now targeting an EBITDA which is higher than the implicit absolute value we anticipated last March, given the fact that we are experiencing higher growth rates of our revenues. So I wouldn't say that the target for the three year is at the moment overly conservative.

Veronika Dubajova: Thank you very much and any comment you are willing to make I think at the time of this showing the medium-term guidance you said the improvement would be more weighted towards '17 and '18.

Any comment you are willing to make on '17 versus 2018. Is 2018 going to be the best improvement or should we think of '17 and '18 as broadly similar.

Enrico Vita: Well, I think that what we said is that the progress in terms of profitability will be quite linear in the three-year periods, with maybe some small upside in 2017, '18 and this is I think what you should expect. But the expectation is quite linear for the three years.

Veronika Dubajova: Understood, thank you very much and Ugo, good luck in your new role.

Operator: The next question is from Oliver Maxler with Commerzbank, please go ahead.

Oliver Maxler: My first one's also about your mid-term guidance, so I see now your sales growth was clearly above your mid-term expectations of this 10.4% growth, asked more directly, your EBITDA margin moved up only by 60 basis points which I would rate rather at the lower end of your described linear end progression related to the midterm guidance. If you had asked me one year ago, I would have expected the higher margin base of operating leverage given this momentum you have currently, so my question is, did you use this higher growth over the more funds related to operating leverage to finding some more investments than initially planned, that's my first question. My second is about the deal at Sinoa and Portugal and also most likely in France, is it your trade sale or have you also agreed to procure a certain amount of hearing aids from Sinoa? And my last question is on your new share buyback program. So I've read you've initiated a new one which with some straightforward intentions, can you share with us your thoughts on free float which is comparatively small given your market cap and which would be further negatively affected by this further share buybacks.

Enrico Vita: So with regards to the guidance for the three years I have to repeat myself saying that today we are definitely on track in executing our midterm strategy and targets. We are not revising our targets as of today. It seems as anticipated our targets were based on the three-year horizon and only one year passed from our meeting on March 2016. However we will definitely be happy to give you an update and essential revision at our next Investor Day which we expect to hold in early 2018. With regards to question about [Multiple Speakers].

Actually there is an agreement in terms of supply related to the acquisitions which is not really material within our global procurement strategy. On the free float I'll pass to Ugo.

Ugo Giorcelli: No significant impact, either way the free float is a standard ongoing thing that got in the Shareholders Meeting too because we need an authorization from [indiscernible] to buyback shares. And you know as part of the remuneration of not only the top management but also the way down to the best performing audiologist is through stock brands. So this stock brands had to be funded and the season has been to buy back shares that we grow back into the market to once signed these stock brands and exercised by the management or in general our employees.

So it has been steady in the 3%-ish range of our shares, this level of shares owned in order to finance to support the buyback. No changes.

Oliver Maxler: And just a follow on my first question, so to ask I think more precise did you increase your marketing expenditures during 2016, stronger than you had initially targeted at the release?

Enrico Vita: Yes, yes absolutely. You know that when we presented you the plan we were envisioning an increase in terms of marketing spend of about 10% in each year of the three-year horizon. Last year as you can see also from our presentation actually.

We invested about 20% more in terms of marketing. It seems as I said we see extremely positive outcomes actually from our initiatives. As you can see -- as you have seen actually the results in terms of revenues rose much higher than our guidance which makes us very confident in pursuing the strategy. As I said also we are very positive about 2017. We intend to continue to leverage on the marketing activities and therefore marketing expenses we continue to increase in 2017, '18 slightly higher pace than the initial 10% that we told you but just because we see that the result in terms of sales are extremely positive.

Oliver Maxler: Since the fabrication of your increased marketing expenditures at your Investor Day in last March. Did you accelerate during that time that you spend more on marketing than targeted at that point of time?

Enrico Vita: Yes, yes. As I told you before during the Investor Day, we were envisioning and increase in the marketing spend of about 10%. What we have done in 2016, we have increased our investments by 20% and we are also envisioning an increase in the next two years of our marketing investments is likely above 10%. So, yes, we are accelerating and the reason is that as you can see actually from our results in 2016, the results are extremely positive.

As I said earlier on, we are also very positive about our 2017 performance. And as I mentioned earlier on actually maybe next year we will also -- we can also revise the targets for the three years during our Investor Day that we will most probably hold in the first part of 2018.

Oliver Maxler: Okay. Thank you very much for the explanations. Ugo for you, all the best for future and bye.

Operator: The next question is from Domenico Ghilotti with Equita. Please go ahead

Domenico Ghilotti: Good afternoon. I have three questions. The first is related to your bolt-on acquisition strategy, you are ahead on schedule also on this target, if I look 2016 and also considering the recent Sinoa deal. And I'd like to understand what is the pipeline in terms of new opportunities, if you see still attractive opportunities as you saw in the last basically 12 months or 18 months.

The second question is a follow up on the North American, and because you sounded extremely pleased by the performance and effectiveness of your marketing investments, but if I see the after results, so I see that you outpaced the market not so significantly and investments were up 40%. So, is the reason where your investment more. So, I’m trying to understand if I missed something, if you are really able to get the moment in terms of the organic top line growth in North America. The last question is just, [indiscernible] in the sense that we are plenty elections in particular in Europe and the Netherlands and France, maybe also in Italy and looking at you’re the effect -- the performance in North America you had mentioned some temporaries down due to the election. Are you assuming similar situations to happen also discounts?

Enrico Vita: Right.

With regard to the question on the bolt-on acquisitions, what I can tell you is that we are proceeding at the full speed. And actually, the very good news that I am able to share with you today is the fact that we continue to also in the first month of this year to deliver on these aspects. As I mentioned thereon, actually we completed some acquisitions in Germany, the first two months which brings the number of stores in Germany above 400 stores. So I can tell that our strategy definitely is continuing and either in Germany and in France it's growing actually above the initial plans. With regards to the U.S.

I think that you have always said to put things into context, as I mentioned by Ugo before, actually I see the performance in Q4 extremely positive for two reasons, the first one is that we had the very, very challenging comparison in the last quarter of last year. Last year in the last quarter we grew almost 19%, so it was in my opinion a very good result actually to grow by 5% in the Americas in the fourth quarter, also in consideration of the fact that as I mentioned earlier on actually we have seen a flattish market in October-November which is something that we did not experience in the U.S. in the past, so I think that we are technically outpacing the market growth. As also Hugo mentioned before we have seen the market bouncing back already in December, in December the growth was 10%. So also in the first two months of this year the growth is quite positive, so I have no real concerns about the growth in the U.S.

With regards to the impact of the GDP well this is very difficult to say, but --.

Domenico Ghilotti: The elections.

Enrico Vita: Sorry, the elections, is very difficult to say, what I can tell you is that initially for example, you know U.S. is a very peculiar country, elections are something that really which are also slowing down the investments from many companies in terms of advertising and so on and so forth. In Italy during the referendum in December we have not experienced any kind of slowdown.

So it's very difficult I think that the U.S. is quite different, different market, different country. At the moment to be honest with you we are not envisioning any kind of negative impact coming from that. Also because yes, I was mentioning the GDP, as you know our business is very resilient, there is no correlation basically between the GDP growth and the growth of our markets, so we are quite resilient in terms of business to external factors.

Domenico Ghilotti: So do you think that maybe the U.S.

situation was just due to the fact that you were stopping being the marketing investments because of the cost?

Enrico Vita: Definitely cost was better and also as you know during the Presidential elections in the U.S. basically everything stops in the U.S., so.

Domenico Ghilotti: Okay, thank you.

Operator: The next question is from Philippe Bopriny with Kepler, please go ahead.

Philippe Bopriny: Good afternoon, I've got one question on dividend.

I've seen that after some years you've increased your dividend, dividend per share. So basically, can you signal your new possibly destination dividend policy for the future, thank you.

Enrico Vita: Well as you know our Board of Directors is going to propose an increase in dividend from €0.043 to €0.07. So which means at the end of the day it increases about 63% on 2016 dividend. The reason for that is simply that we recognized that we have unchanged our dividend policy for many years, despite the strong improvement in our performance in our results.

So we believe that is correct in the light of this strong results to propose higher dividend, with a payout around 25%, which is also more in line with peers and the markets. Of course this doesn’t mean that we are changing all our priorities because of course our objective remains the focus on the company development and the growth initiatives to accelerate our supply. So I think that this change in payout and dividends is mainly related to the stronger performance that we posted last year.

Francesca Rambaudi: Operator we will have one final question and then I think we should close the call.

Operator: The next question is from Markus Gola with MainFirst.

Please go ahead.

Markus Gola: Only just one left and it’s a follow up on the reimbursement changes in France. So besides the French antitrust authorities, to my knowledge also the French government look into hearing aids in December last year. And I understand there the intention of the government to triple the public reimbursement rate from €120 to €370 in that country and also to organize a workshop in the beginning of the year with five insurance company to make sure it is more affordable. So my question is, whether you heard about these discussions and how could that effect your organic growth rate in that country in '17? Thanks.

Enrico Vita: You are right because the French government according to what they say that they will propose a publics spending -- additional public spending of about around 50 million, to be precise 47 million in order to increase the reimbursement for hearing aids and this proposal is supposed to be ratify in H1, half 1 2017. And this proposal is also in line with recommendation from the antitrust authority which in its document highlights the current low level of reimbursement in France versus other countries. So yes, we should expect possibly some increase in the reimbursement in France.

Markus Gola: And is this already part of your guidance or would there be an additional upside to the guidance you gave more than a year ago?

Enrico Vita: No we were not envisioning this increasing reimbursement and the implications to our business are too early to be said.

Francesca Rambaudi: Okay operator I think we are done.

So I think…

Operator: I confirm there are no more questions.

Francesca Rambaudi: Thank you.

Operator: Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your cellphones.